Fast Track to Growth: Intellectual property – keeping control of your assets

Fast Track to Growth has been developed by SouthWestfd, PR, Astley Media and Exeter Innovation Centre, and Stephens Scown is supporting the programme. We’ve published a series of articles to highlight certain challenges to successful business growth and how to overcome them. In this article, Tom Moore, trainee solicitor at Stephens Scown, explains how to use intellectual property to protect your assets.

A contractual relationship between your business and another will often stipulate who will own the intellectual property that is created as a result of that relationship.

On the face of it, this will seem simple enough – where two people come together to create one work, it is only fair to decide, before work begins, who will own whatever the outcome is. For example, Michelangelo’s sculptures are credited to him but created by a team of people. The team’s contractual relationship would have been one that stipulated Michelangelo is to be the owner of all the IP that arises as a result of the work. But Michelangelo was once an apprentice himself, working for other artists – so to give away all his IP to his then master would have been a foolish mistake to make.

This is why contracts should stipulate who owns what and then determine that relationship post-contract. Often referred to as “carving out”, there are two key elements to an IP carve out:

Background IP

This is the intellectual property that is brought to the table by each party.

For example, if your business offers printing services and you are commissioned to print and distribute the tickets for Glastonbury Festival, your background IP will likely be the know-how, trade secrets and software you use on a day to day basis to create and distribute items (in this case, tickets).

By contrast, Glastonbury Festival would have their own background IP (consisting mainly of copyright, design rights and trade marks).

The idea behind defining these background IP elements is that, legally, never the twain shall meet.

Continuing this example, the practical steps of creating the ticket means that, inevitably, the background IP of both parties will become entwined together to create an awesome ticket that brings a smile to the recipient as they tear open the perforated envelope.

Foreground IP

What IP rights arise during and as a result of the contract are typically called “Foreground” rights. In our example, foreground IP rights would come into existence where you made alterations to the Glastonbury Festival imagery and the text changed to be a different font with a white body and black surround to ensure legibility.

These changes would create rights in the resulting work and those rights would then be considered foreground IP. Unlike background IP, where the parties come to the table with the rights and there is no confusion over ownership, foreground IP is new and needs to be owned by one of the parties. This is usually a point for commercial negotiation but a fair contract will grant a licence to the other party of the foreground IP for use beyond the scope of the contract.

Summary

It is important to understand the legal relationship with the parties you contract with. If IP rights aren’t dealt with in your contract there can be long term headaches for a business – you could be creating IP rights and then not be able to use them or, even worse, giving IP away to the business you’ve contracted with.

Businesses who contract with service providers should understand that, rather than asking for ownership of all the intellectual property rights, taking a licence is often a better long term solution – as the service provider, you can keep hold of your asset and develop and refine your process to produce more cost effective solutions in time, creating a better business and a more cost efficient offering.